SoK Corporation AnnuAl report 2010 Contents 4 Recession a thing of the past in S Group 6 Grocery trade changes as customers change 10 A year of growth and development in consumer goods trade 14 Co-op members´ABC 18 Tourism and Hospitality Business recovers 22 Automotive trade gets up to speed 24 Agricultural Trade feels the pressure to change 26 Rapid expansion in neighbouring countries 28 More effective procurement 30 Taking care of personnel 32 For the benefit of co-op members 34 Co-op members´own bank 36 What is the S Group? 38 SOK Corporation 2006−2010 39 SOK Corporation’s Corporate Governance and Management System 42 SOK Supervisory Board 44 SOK Executive Board 2011 45 SOK Corporation´s Corporate Management Team 2011 46 SOK Corporation´s Organisation 2011 47 SOK Corporation´s Financial Statements 2010 The year 2010 started to look brighter towards year end. The recession eased up, our strategy was realigned, and the number of our co-op members increased to 1.9 million. recession a thing of the past in S Group n 2010, the atmosphere surrounding the Finnish enables us to navigate safely through the last waves of Ieconomy was extremely two-sided. Whereas the recession. beginning of the year was characterised by deep reces- I would like to emphasize two basic principles in our sion, the situation cleared up significantly by the middle new strategy which I believe will carry us forward for a of the year. long time. Firstly, customer-orientation will be increas- Changes in the economy were also seen in S Group, ingly highlighted as the starting point in all our opera- although our strength lies in grocery sales which with- tions. Secondly, we will emphasize our unique coopera- stand economic fluctuations quite well. The situation tive form of business even more clearly. For us, the core was the most difficult in the agricultural trade, which of our strategy is responsible operations everywhere is still experiencing the global disturbance in business where we do business. That enables us to obtain the operations, and the market in Finland is not growing. approval of our co-op members for our vision: to offer In the automotive trade, we are again on solid the most sought after and extensive services available at ground. Sales started to pick up gradually in the spring, the co-op member’s own store. and the positive development continued towards the The new strategy requires changes in the organisa- end of the year. In the tourism and hospitality business, tion. Organisational changes were released last autumn recession also ended in the summer of 2010. and implemented at the turn of the year, based on the The reduction of the value added tax on restaurant renewal of our service model which had been launched food and the favourable summer in terms of tourism in earlier. By developing the new organisation further, we Finland gave the business a welcome boost. will intensify the common service production in our Consumer goods trade suffered from recession dur- group. ing the first months of the year, but the rest of the year, It is equally important to develop our current busi- including the Christmas sales, was positive for S Group. ness areas to address new challenges. A good example of As the economy recovered, construction, renovation and this is the consumer goods trade development project interior decoration picked up as well. which has been going on for a couple of years. Within I took up the role of CEO in April 2010. The timing the framework of this project, an enormous logistics was favourable, since I could immediately participate in centre with the most low-carbon heating and cooling S Group’s strategy reform and have an impact on our systems in the Nordic countries has been built, the key strategic choices. I believe that our new strategy Kodin Terra chain with near-nationwide coverage has 4 SoK CORPORAtION ANNuAl REPORT 2010 been established, and an online store for beauty, operating under the Sokos brand, has been launched. The foundation of S Group’s operations is solid and, for that, I would like to express my thanks to every employee of our group. In particular, I would like to thank my predecessor, Arto Hiltunen. The changes underway now continue and complement the work car- ried out under his leadership. I also want to express my thanks to Antti Sippola for taking responsibility in the transition phase; his support gave me a good start in my work with SOK. However, the group that deserves the greatest thanks is our cooperative enterprise co-op members, totalling 1.9 million, who trust our services. We will do our best to continue to earn their trust, because trust is the only thing that will allow our independent cooperative of people to develop in the years to come. We have good tools in our hands for building a successful future. Helsinki, 17 February 2011 Kuisma Niemelä Chief Executive Officer, SOK SoK CORPORAtION ANNuAl REPORT 2010 5 Grocery trade changes as customers change S Group’s grocery trade does not rest on its laurels despite being the market leader in grocery sales in Finland. The store network is being upgraded and operations are continuously developed to meet the changing needs of co-op members. Group’s grocery trade lives and changes with the Srhythm of the changes in the operating environ- ment and in customers’ everyday lives. Special attention is now being paid to environmental friendliness, prop- erly targeted selections and increasingly smooth service provision as existing units are renewed and completely new stores are established. Extensive investments in the development of the store network have been going on for several years. Currently, S Group’s grocery stores can be found in the areas of every cooperative enterprise. In 2010, the number of stores increased by 10 new Alepa and Sale neighbourhood stores, 13 new S-markets and five Prisma hypermarkets in Finland. Although the network is already fairly extensive, upgrading the stores and keeping them up-to-date requires continuous work. In addition, in big cities there is a constant need to expand the store network since migration from sparsely populated areas to larger residential centres continues.Group’s grocery trade lives and changes with the rhythm of the changes in the operating environment and in customers’ everyday lives. Special attention is now being paid to environmental friendliness, properly targeted selections and increasingly smooth service provision as existing units are renewed and completely new stores are established. Extensive investments in the development of the store network have been going on for several years. Currently, S Group’s grocery stores can be found in the areas of every cooperative enterprise. 6 SOK CORPORATION ANNUAL REPORT 2010 In 2010, the number of stores increased by 10 new Alepa and Sale neighbourhood stores, 13 new S-markets and 5 Prisma hypermarkets in Finland. Although the network is already fairly extensive, upgrading the stores and keeping them up-to-date requires continuous work. In addition, in big cities there is a constant need to expand the store network since migration from sparsely populated areas to larger residential centres continues. private label selection grows Sales growth in the grocery trade in S Group was in line with targets and exceeded the overall growth in the sec- tor in 2010. The set performance targets were also met and the market share strengthened further. The strikes in the foodstuffs industry hindered the availability of products in the spring, and this slowed down growth in S Group’s grocery trade. The economic recession resulted in customers buying more affordable products last year. S Group responded to the growing demand for more affordable products by developing its private label selec- tions Rainbow and X-tra. Private label selections have grown particularly strongly in fresh products recently. Growth in the selection boosted the sales of the private labels in 2010, resulting in growth of nearly 30 percent. The goal is to increase private label sales to approxi- mately a fifth of the value of the entire grocery trade. expanded hours for improved services The change in the legislation on retail store hours was put to the test for the first time during 2010. From the retail perspective, the experiences have been very posi- tive, and customers have also welcomed the extended hours. The liberalisation of retail store hours has improved customer service by providing more flexibility for customers to shop whenever it suits them. The experiences of S Group’s grocery trade in relation to extended hours are positive. Customer volumes are now spread more evenly across different weekdays, and the weekend peaks have evened out. Customers have welcomed the extended Saturday hours in particular. S Group has extended service hours in all of its grocery stores. The biggest benefits of the extended store hours are felt by small stores of no more than 400 square metres in area, which have total freedom SOK CORPORATION ANNUAL REPORT 2010 7 Grocery trade is conducted in the Prisma, S-market, Sale and Alepa chains, ABC service station stores, ABC Delis and the grocery sections of Sokos stores. At the end of 2010, the supermarket chains compri- sed 834 outlets. There were 108 ABC service station stores and 17 ABC Delis. In Finland, the business operations of all supermarket outlets are handled by the regional cooperative enterprises. 8 SOK CORPORATION ANNUAL REPORT 2010 S Group’s market share in the grocery trade (%) 50 40 30 20 10 26.3 27.8 29.0 30.5 31.1 31.1 34.3 35.9 39.9 41.1 42.4 43.2 44.1 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 to determine their store hours.